Recommendation: Buy
CMP = Rs 480 (at the time of this recommendation)
Price target: Rs 632
Key points:
- Punjab National Bank (PNB) reported an impressive growth of 128.8% yoy in its bottom line during Q4FY2008. The profit after tax (PAT) of Rs 543.8 crore was well above our expectation. The net interest income (NII) for the quarter stood at Rs 1,517.3 crore, up 12.7% yoy. After adjusting the year-ago NII for one-time gain (Cash Reserve Ratio income of Rs 56 crore), the NII growth comes at 17.6% yoy.
- The non-interest income registered a 9.8% decline yoy and reached Rs 537.2 crore. Notably, the operating expenses were down 21.8% yoy to Rs 827.7 that helped boost the bottom line. The decline in the operating expenses stemmed from a 33.3% decline in the staff expenses. The provisions and contingencies were down significantly by 72.6% yoy to Rs 167.7 crore. The decline was primarily due to improving asset quality.
- The advances registered a healthy growth of 23.7% yoy to Rs 1,19,502 crore, while the deposits were up 19% yoy to Rs 1,66,457 crore. The current account and saving account ratio stood at an impressive 43%. The asset quality improved further during the quarter on both absolute and relative basis. The gross non-performing asset (GNPA) in percent terms stood at 2.74%, significantly down from 3.45% a year ago, while the net non-performing asset in percent terms declined to 0.64% from 0.76% a year ago. The significant improvement in the asset quality has allayed concerns to a great extent.
- Capital adequacy ratio (CAR) as at the end of Q4FY2008 stood at a comfortable 12.96% based on
- At the current market price of Rs 480, The stock trades at 6.4x 2009E earnings per share (EPS), 3.3x 2009E pre-provisioning profit per share and 1.2x 2009E book value per share.
- I maintain Buy recommendation on the stock with revised price target of Rs 632 over next 6 months.
